Monday, October 06, 2008

Crash and Burn Time?

Is this finally the time for the crash and burn of the economic system and the nation state? The answer is "maybe." (Although I suspect that it is at least the beginning.) Here are a few thoughts related to the subject from around the web.

Global Guerrillas:
Trend Line Assumptions

Here are some assumptions that underly all current activities related to the global financial crises:
  • Optimistic long term outcomes. Things are going to get better. Pollyanna mindsets.
  • The system, as it is currently configured, is the best possible or the only possible system. Faith in ideology.
  • Nation-states, singularly or collectively, are bigger and stronger than the financial/market system. The US is the guardian of this system. 20th Century legacy thinking.
The above assumptions lead to offensive (all we need to do is find the right leader) or reactive (whack a mole) mindset/policy. If you reverse them, you develop a defensive and opportunistic mindset/policy.
This faith is ideology is very similar to faith in technological progress. "They'll think of something..." (Whomever they might be?) Positive thinking is a lie for negative situations.

Paul Craig Roberts: A Futile Bailout as Darkness Falls on America.
As the US Treasury has not got $7, much less $700 billion, it must borrow the bailout money from foreign creditors, already overloaded with US paper. At what point do America’s foreign bankers decide that the additions to US debt exceed what can be repaid?

This question was ignored by the bailout. There were no hearings. No one consulted China, America’s principal banker, or the Japanese, or the OPEC sovereign wealth funds, or Europe.

Does the world have a blank check for America’s mistakes?

This is the same world that is faced with American demands that countries support with money and lives America’s quest for world hegemony. Europeans are dying in Afghanistan for American hegemony. Do Europeans want their banks, which hold US dollars as their reserves, to fail so that Paulson can bail out his company and his friends?
I'd be willing to bet that is a big NO.

Mike Whitney: Edge of the Abyss.
[I]f something is not done to increase the flow of credit immediately, the stock market will tumble, unemployment will spike, and many businesses will grind to a standstill. We could be just days away from a severe shock to the system. Secretary of the Treasury Henry Paulson's $700 billion bailout does not focus on the fundamental problems and is likely to fail. At best, it puts off the day of reckoning for a few weeks or months. Contingency plans should be put in place so the country does not have to undergo post-Katrina bedlam.


So, how does Paulson expect to recapitalize the banks, which are loaded up with $2.4 trillion in mortgage-related investments, when congress's bill allocates a paltry $700 billion for the rescue plan? It's impossible. Just as it is impossible to keep prices artificially high with this kind of government buy-back program. These structured investments were vastly overpriced to begin with due to the fact that the market was hyperinflated with the Fed's low interest credit. As Doug Noland said, "This Credit onslaught fostered huge distortions to the level and pattern of spending throughout the entire economy. It is today impossible both to generate sufficient Credit and to main previous patterns of spending. Economic upheaval and adjustment are today unavoidable." (Doug Noland's Credit Bubble Bulletin)

Yes, and "economic upheaval" leads to political upheaval and blood in the streets. Is that what Bush wants; a chance to declare martial law – as threatened to recalcitrant congresspersons during the arm- twisting over the bailout - deploy his North Com. troops within the United states to put down demonstrations of middle class people fighting for bread crumbs?
Time to fight?!? Possibly. Although, frankly, I doubt the US military could occupy the entire country without destroying itself. Will troops really stay in the ranks when their own families are going hungry? (Considering many enlisted soldiers' families are living on food stamps, it is a likely possibility.) When the dollar is worthless, how are the troops going to be paid and fed? Just like the police in New Orleans left their posts to take care of their families, I doubt many would stick around. Besides, the US military cannot even occupy a country (Iraq) the size of California successfully. What are they going to do when it's everywhere?

At the very least, I would advise stocking up on food for about the next six months.

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